Posted on 09/17/2008 3:26:55 PM PDT by JDoutrider
What are us mere mortals to do in this Financial Meltdown that has seen major financial institutions go bankrupt, many thousands laid off, and the Federal Government using our tax dollars to stem the flow of a new Depression?
How's YOUR I.R.A. doing? No need to answer that one! Do You fear being locked out of your Bank unable to even access your money from a ATM? Got Cash? There is good reason to fear that in the short run... did you know the F.D.I.C. has only Fifty Billion dollars set aside to cover over a TRILLION dollars it guarantees?
Ever hear of a Bank Run? Unknown to many Americans, there already exists what is called a "Slow Bank Run". Of course eventually the FDIC will print up enough dollars to cover all it's insured, but unless this has been prepared for, that will take time. Not to mention what that does to the value of a Buck!
Earlier today I approached some of FreeRepublics finance wizards about a question relevant to all of this... and thought this would be a good place to post a thread that others could learn from, and post about their take on what to do in an unstable financial environment.
A younger friend of ours is panicking about whether, or not, to cashing in his medium value Roth IRA and following my wife and my move in going all cash (which we did in the spring). It appears he is not alone in this worrying! His job is not that stable, and his Wife is on strike at Boeing. I told him I would ask here at FR for advice, my self not that well versed in Roths and IRA's
His Roth is worth over a hundred grand, and invested in mutual funds (uh oh!). He fears that Roth will lose all value in this chaotic market. I don't blame him a bit!
Some of the answers I recieved were "Stay Steady", others told me that if wants to go "all cash" that he could do that within his Roth IRA! Still others told me that this is a great time to bulk up in donations to the Roth as the prices in the market may be at the lowest they'll get!
The advice proffered has included going to straight money markers to selling off everything, grabbing Gold, Bullets, Food and other of lifes daily needs...
So what say You? Hoarding any or all of the above? Should my buddy stay the course?
BTW... I told him to get out and go all cash...
LOL! I’ve seen a lot of that recently!
>>I’m not calling a bottom but historically when amateurs pull out of the market it’s a bottom. <<
Actually, I think it is when “everybody knows” only a fool would enter the market.
...Although I would concede that for the risk averse, near or recently retired, cash equivalents like Treasuries, CDs or Money Market funds inside an IRA could be a solid choice.
But not if you don't need the money in the near term.
Up $84...
I don’t know if I am being overly optomistic, but the loan to AIG is not technically just a lost cause. If the operations can be salvaged, and premiums in excess of losses begin to replenish the coffers, the loan can be paid back to the US. That leaves a stake in a very valuable company for resale. There must be some mortgage backed securities in this mix somewhere that are full of foreclosures. Around Phoenix, these are beginning to sell pretty briskly and for fairly decent prices (read that, not necessarily in the tank).
Ladies and gentlemen please assume crash positions...Airplane-style!
“Ever hear of a Bank Run?”
YES!!...back in the 1970s it happened to my bank in Houston...here’s how it went down:
Sunday...the Houston Post ran an article that the Sharpstown Bank had made some large unsecured loans to local politicians, athletes and astro naughts.
Monday morning...the news showed people waiting outside for the bank to open to withdraw their money.
Tuesday...the news showed lines around the block.
Wednesday....they brought in an armored car full of cash from the Fed in Austin to try and stem the flow.
Thursday....fist fights broke out in the bank’s lobby.
Friday....the bank did not open.
....tapped out in just four days...and BTW Sharpstown Bank was the 11th largest in the state; which is saying something because Texas didn’t have branch banking at that time....in a couple of weeks the Fed came in and we took our bank statements and check books down to show them....shortly after, we got a reimbursement check from the Federal Reserve bank in Philadelphia....big accounts got $100k and an IOU for any overage....when the bank’s assets were sold they ended up with 11 cents on the dollar.
Famous last words I said on Monday when my wife suggested that we go get out money out of the bank:
“DON’T BE SILLY HONEY....THIS ISN’T THE DEPRESSION....BANKS DON’T GO BUST ANY MORE!”
Quick! Name all the crashes since 1946 that didn’t recover within a few years to a much higher DOW or S&P.
Me too. The immense productivity and resilience of the US economy just went on sale. I have a good twenty-five years until retirement, so I am continuing to sock away money every month in a diverse range of stocks and index funds.
This will pass. Our economy will come back stronger than ever. We are close to a turnaround in the housing market, which will clean up a lot of balance sheets on Wall Street. We will lead the way out of the recession that the rest of the world is only now falling into.
Great fortunes will be made by those who keep their heads, stay liquid, and look for bargains.
-ccm
On the bright side, I live in the country, have access to plenty of fresh water, and am well armed.
First, determine what went wrong, close that door and then restart.
Excellent post! Thanks for the reminder.
Ha! You and me both.
It’s crazy!
I saw this coming two years ago. I got out of the market completely, liquidated everything, and turned the proceeds towards the improvement of my real property (i.e. my home). My exposure is low; the property is mortgaged, but at a low fixed rate, taxes are low (I live in an old inner-city neighborhood) and I already have about a 25% equity share in the property. So far I’ve put on a new, super energy-efficient steel roof, a radiant barrier and new insulation; upgraded the climate control; and have begun landscaping to replace the water-guzzling grass lawn with native Texas plants, which look great and are highly drought-resistant. We are currently having our oak flooring repaired and refinished; next comes a complete rewiring job, kitchen and bathroom refurbs, and the building of erosion-control masonry parapets around the peripheries.
I’m not doing all this to sell and “move up”; I plan to live here until I retire. If the economy roars back to life, great; I have an affordable home that is worth lots more than I paid for it. If worst comes to worst, we’ll batten down the hatches and weather the storm in our sound, low-cost home. We may have to eat rice and beans for a while, but that mortgage payment is by God going to be made on time every month.
I like rice and beans myself.
I hate to say it, but the current market disaster is largely our own fault: it is the fruit of the marriage of the kind of laissez-faire, robber-baron capitalism we all convinced ourselves would work, and the corrupt quasi-socialist politicians we elect to Congress. As a result, I have a hard time feeling sorry for many of the people involved in this meltdown. Everyone knew perfectly well what happens sooner or later if you don’t live within your means, but nobody wanted to admit that the Magical Mystery Money Machine would someday grind to a halt. But the Gods of the Copybook Headings can only be defied for so long, and their patience is coming to an end.
Generally speaking, people get the government — and economy — they deserve. We knew what we going on, and we ignored it; now, we are going to pay the price.
More rice and beans, anyone?
The only things I know for sure are:
a) The US economy thrived the last 10-15 years on Credit. Credit from foreigners, credit created in Wall Street leverage schemes like CDO’s, CLO’s, etc. Credit, Credit, Credit. Six-year car loans, 100% home equity loans, crazy corporate bond and debentures with minimal loan covenants and collateral required.
b) In the last year we’ve now lost probably 50% of all available credit in the United States as all these credit creating vehicles are gone. Done. Finished.
c) With that free and easy credit gone, economic growth (construction, business creation, hiring, etc.) will slow greatly and that will impact stock prices.
I don’t disagree with those who advocate sticking in stocks for the “long-run” but remember that general stock indexes have generally gone nowhere from 1998 to 2008. Sure they’ve fluctuated during that time. But they haven’t advanced. We could have a Dow that still needs to drop into that 7800 range before things can start up again.
Interesting story.
Note: the Fed is in Dallas, not Austin.
-Go to gold, alcohol and cigarettes;
-verify ammo and food stocks;
-clear the brush in front of the gun ports and on the berms weekly;
-straighten the sector stakes and test the detonators daily and
-get rid of non-security pets, pets being both an indicator of ample food supplies and to avoid the neighbors coming over to eat them.
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